Category Archives: Economic Research

Economic Research

NCPI September 2021

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The Namibian annual inflation rate rose to 3.5% y/y in September after it had slowed to 3.4% in August. Prices in the overall NCPI basket rose by 0.3% m/m. On a year-on-year basis, overall prices in five of the twelve categories rose at a quicker rate in September than August, five categories experienced slower rates of inflation and two categories posted steady inflation. Prices for services rose by 1.7% y/y while prices for goods rose by 4.8% y/y.

Transport, the third largest basket item by weighting, was the largest contributor to annual inflation, contributing 1.0 percentage point to the total 3.5% y/y inflation rate. Prices in this category increased by 1.5% m/m and by 7.5% y/y in September. Prices in two of the three sub-categories recorded increases on an annual basis. Vehicle prices increased by 10.4% y/y and prices in the sub-category “operation of personal transport equipment” increased by 11.6% y/y. The price of public transport services decreased by 8.3% y/y. Due to base effects, we are likely to see another year-on-year increase in this sub-category in October, which will put further upward pressure on the transport inflation print.

The increases in transport costs can be attributed partly to increases in the price of oil. A lack of investment in the supply of oil (constructing new oil rigs and refineries), coupled with a sustained increase in global demand for energy means that prices for oil are expected to remain high in the short to medium-term. In summary, rising transport costs, driven by sustained increases in the price of oil, are likely to continue exerting upward pressure on the inflation figure as we are likely to see second round effects should transport prices remain elevated.  

Food & non-alcoholic beverages was the second biggest contributor to the annual inflation rate in September, contributing 0.9 percentage points. Prices in this basket category increased by 0.1% m/m and 5.0% y/y. All sub-categories registered price increases on an annual basis. The largest increases were observed in the oils and fats subcategory, which increased by 17.7% y/y, and meat prices, which rose by 12.1% y/y. On a monthly basis, twelve of the thirteen sub-categories saw price increases while only the price of vegetables decreased, by 2.3% m/m.  

The third largest contributor to the annual inflation rate in September was the alcohol & tobacco basket item, recording inflation of 0.5% m/m and 3.0% y/y. The prices of alcoholic beverages increased by 0.3% m/m and 1.8% y/y while the price of tobacco products increased by 1.1% m/m and 8.6 % y/y.

The 3.5% y/y annual inflation rate is in line with IJG’s average inflation forecast for the year. IJG’s inflation model predicted that annual inflation rate would be 3.4% y/y in September. Inflation risks remain to the upside. Elevated global shipping costs and the ongoing shortage of microchips and semiconductors pose a threat to production in a variety of industries. IJG’s inflation currently predicts that annual inflation will rise to 3.6% y/y in November and 3.8% y/y in December 2021. Average annual inflation for 2022 is forecast at 3.6% y/y. Given current data, the estimated upper bound for annual inflation in Namibia in 2022 is 4.7% y/y. The current uncertainty in the global economy makes this is a highly tentative prediction. 

PSCE – August 2021

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Overall

Private sector credit (PSCE) decreased by N$94.3 million or 0.09% m/m in August. On a year-on-year basis, PSCE grew by 1.85% y/y in August, down from July’s increase of 2.72% y/y. On a month-on-month basis, financial corporations, individuals and the non-resident private sector all increased their borrowings. Corporates, on the other hand, decreased their borrowings by N$519.1 million or 1.20% m/m. Cumulative credit extended to the private sector over the last 12-months amounted to N$1.91 billion, down 17.0% from the N$2.23 billion issued by this time last year. Individuals have taken up the majority of this cumulative issuance. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.66% m/m and 4.40% y/y in August. This is the largest year-on-year increase in 2021. This increase was driven strong growth mortgage loan growth of 4.6% y/y and 4.4% y/y growth in other loans & advances (credit card debt, personal- and term loans). Overdrafts grew by 9.1% y/y in August. All subcategories of loans and advances posted growth on a monthly basis with other loans and advances posting growth of 2.1% m/m, mortgage loans increasing by 0.4% m/m and overdrafts climbing by 0.2% m/m.

Credit Extension to Corporates

Credit extended to corporates contracted by 1.20% m/m and 1.23% y/y in August, as businesses continued to delever their balance sheets. This is the first year-on-year decrease in corporate credit extensions in 2021. The decline is largely due to overdrafts to corporates decreasing by 5.1% m/m and 3.1% y/y. Other loans & advances shrunk by 1.7% m/m and 1.0% y/y. Instalment credit grew marginally by 1.5% m/m but contracted by 2.6% y/y, the 19th consecutive month of contraction on an annual basis. Corporate mortgages increased by 2.1% m/m and 0.4% y/y.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks increased significantly in August, rising by roughly N$1.24 billion to an average of N$1.80 billion in August. As a result of the improved liquidity, the balance of repo’s outstanding decreased. The repo balance at the start of August was N$1.02 billion, by the end of the month it stood at N$734.6 million.

Reserves and Money Supply

Broad Money Supply contracted by N$1.38 billion or 1.1% y/y in August, according to the BoN’s latest monetary statistics. The money supply did however increase month-on-month and now stands at N$123.1 billion compared to N$121.5 billion at the end of July. The BoN’s stock of international reserves decreased by 4.1% m/m to N$40.9 at the end of August. The central bank attributes this decrease to both increased government payments and commercial bank purchases of foreign currency for import payments in August.

Outlook

Overall, PSCE growth remained subdued and in line with what has been seen so far in 2021. As stated, rolling 12-month issuance is down 17.0% y/y to N$1.91 billion, but more tellingly that same figure is down 67.1% compared to August 2019.  

Even if, interest rates remain steady for the remainder of 2021, as expected, this is unlikely to meaningfully increase the growth rate of PSCE. Despite growth in the economy in Q2 2021, consumers are likely to remain cautious and prioritise saving over consumption. The data bears this out as year-on-year increases in credit extensions to individuals in 2021 are similar to those seen in 2020. Meaningful PSCE growth is therefore likely to return only once macroeconomic conditions improve meaningfully and both consumers and businesses can spend more freely.